Sunday, April 17, 2011

Firm Culture: Could You Work Here?

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Dalio of Bridgewater Associates

﻿﻿﻿﻿ Bridgewater Associates is a successful, $90 billion hedge fund, located along the Connecticut corridor where other successful, gargantuan hedge funds have a home base. Ray Dalio, a Harvard Business School graduate, is its founder and leader. The fund's investors include pension funds and university endowments.

Over 1,000 people are employed in a variety of roles. It recruits those who are tough-skinned, highly motivated and interested in a long-term career at the fund. MBAs in finance would no doubt be attracted to an opportunity there.

Would you want to work there?

Would it be a place where you can find a niche, thrive and be successful? Would you be able to endure hardships and demands to perform well? Would you be able to stomach equity volatility, risks of losses, and virulent market turmoil? And would you be able to perform under pulsating pressure and high expectations?

Bridgewater is also known as a fund that operates based on a set of cult-like principles, written and often updated and revised by founder Dalio. "The principles" had been rumored and talked about for a long time. Before they were public, former employees, managers and investors mentioned them. They told tales of employees (traders, analysts, and researchers) being subjected to tough, unrelenting, bruising criticism--as required by the principles.

Dalio, perhaps tired of speculation about whether the principles exist or not, eventually decided to post them (all 122 pages) on the firm's website for all to see. (See BRIDGEWATER-PRINCIPLES) There they are, to be seen and studied by competing funds, prospective employees, and academic experts in business strategy and corporate organizations.

In the world of hedge-fund blogs and chatter, some say Bridgewater is not a culture, but a cult. Others say if the firm is successful (having attracted talent and experience and having survived the financial crisis), then it's not a cult, but an organization whose culture might be replicated by other funds, institutions and organizations. Others who have worked there speak (anonymously) of having had demoralizing experiences or or having endured debilitating asssessments of their work.

Dalio is unapologetic. "We maintain an environment of radical openness," the Bridgewater site states. "(That) honesty can be difficult and uncomfortable." Sharp criticism and open discussion, he explains, help people improve, which helps the firm be consistently profitable. There is pain, but there is ultimate gain for all.

Are there, however, costs to such success and consistent performance? Bridgewater, as a private fund, does not report results and doesn't have to (except to investors and, even then, occasionally and in the manner it chooses). As a reputable hedge fund with billions under management, fund managers, traders, analysts, researchers, and new MBA recruits are well-compensated. Yet at what costs?

How would a Bridgewater culture differ from the vaunted, well-examined cultures of such firms as GE and Goldman Sachs? If it works at Bridgewater, can it work in other industries? For new MBAs, how important is culture in evaluating a prospective employer?

Some outsiders say employee retention is low at Bridgewater. It's not unusual for 30-40% of those hired to leave within the first few years. Some ex-employees say the smothering criticism starts during interviews, where interviewers crush prospects with analyses of weaknesses and deficiencies.

Dalio contends it works and suggests that employees who understand and absorb the principles thrive and benefit in the long term.

Bridgewater's principles, as they appear for all to see and examine, aren't corporate-polished. They are bluntly presented. They are ruminations from Dalio--imperative statements based on experiences in the past and based on what has worked for him the past three decades. They boil down to understanding reality, not hiding from it, identifying mistakes, learning from them, and using them to get better. Identifying, exposing and calling out mistakes boldly, brashly, and purposefully. That's where it gets uncomfortable.

Bridgewater is susceptible to being called a cult, because the principles are presented as a one-way stream of thoughts from its founder. The principles never address the details of Bridgewater's fund business. They expound on goals, planning, and behavior. Nothing about capital, risk management and asset allocation; nothing about arbitrage, currencies, technicals, trading momentum and value-investing.

Some of its principles make sense--at least for this type of organization, a large hedge fund required to make trading and investment decisions in swift-moving markets. They may work for a fund, but not for a manufacturer, an industrial complex or a conglomerate.

The principles address decision-making--a critical element in hedge-fund trading and investing fund capital. What are the goals in making decisions? How should decisions be made? How can the fund ensure that people will make the best decisions on behalf of the fund?

The principles discuss goals. Reaching goals requires identifying and solving problems. And solving problems requires harsh, candid assessment of employees. "Once you identify your problems, you must not tolerate them," Dalio writes. Diagnose the problem, he says, and solve them--even if it requires upsetting employees. After goals and problem-solving, the principles address planning and execution.

Some of the principles are reasonable and well-rationalized. For example, Dalio says managers should obsess in putting people in the right roles, increasing the probability they can succeed. He says in evaluating employees, pay for the person and not the job; weigh an employees' values and abilities more than skills.

Dalio says, "In our culture, there’s nothing embarrassing about making mistakes and having weaknesses....At Bridgewater people have to value getting at truth so badly that they are willing to humiliate themselves to get it." Elsewhere, he says, "(E)valuate (employees) accurately, not kindly."

As an MBA in finance (with or without experience), could you work and thrive in this environment? Would potential compensation and experience offset possible personal humiliation?

He values communication, even excess communication to ensure everybody throughout the organization understands goals, issues, and corrective action. He values managers, employees, and colleagues maintaining healthy, tight relationships with each other, making it easier to evaluate the performance of each other.

In 122 pages, almost all aspects of management and organization behavior are covered--from performance metrics to firing employees (when they exhibit no potential to improve). Some topics are not addressed, possibly because Dalio has not gotten around to writing them down. He dismisses job-related stress, leaving it to employees to internalize egos or handle the frustration of being humbled by a jarring critique of a recently completed project.

The principles don't address the value and importance of diversity in organizations--except when Dalio explains the value of permitting all voices within an organization to speak up and share their views or criticism of others.

For the most part, the Bridgewater approach is "take it or leave it." But Dalio heartily believes you might be better off "taking it."